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What is Activity Based costing and what are the benefits and cons of using it?
Activity based costing (ABC) is basically a method of allocating costs to both products
and services. Activity based costing is typically utilized as a tool to both plan and control.
Traditional cost management systems have historically not been able to figure out real costs,
which in turn, made it extremely difficult to make appropriate assessments; activity based
costing lets management attribute costs to certain activities and products more precisely.
The benefits of activity based costing include the facts that it is able to figure out who the
most and least profitable customers and controls are. Activity based costing helps predict costs
more precisely, while forecasting requirements that pertain to modifications in structure and
resources. Also, it can determine the reasoning behind financial difficulties while offering
management with a baseline for how to improve.
Activity based costing also helps track various flows and activities. There are,
nonetheless, some disadvantages with activity based costing. For example, management may
find it tricky to switch from their traditional methods. Also, it is more costly to utilize; although,
if utilized appropriately, it would be worthwhile. Likewise, if activity based costing is not used
appropriately, it has the capacity to cause major issues within an organization.

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What is Activity Based costing and what are the benefits and cons of using it? Activity based costing (ABC) is basically a method of allocating costs to both products and services. Activity based costing is typically utilized as a tool to both plan and control. Traditional cost management syste ...
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